(Updates to add share prices in fifth paragraph.)
June 3 (Bloomberg) -- Harmony Gold Mining Co.’s Papua New Guinea mine is shaping up to be the world’s third-richest gold and copper deposit, raising speculation its partner in the venture, Newcrest Mining Ltd., may make a takeover bid.
“I understand they’ve tried to buy it off Harmony and Harmony is obviously not selling it,” said Prasad Patkar, who helps manage about $1.8 billion at Platypus Asset Management Ltd., including shares in Melbourne-based Newcrest. “One option for them is to buy Harmony out completely and then spin out all of the other assets.”
The partners are set to give an update as early as July on the potential size of the Wafi-Golpu deposit, which they’ve compared with Freeport-McMoran Copper & Gold Inc.’s Grasberg mine, site of the world’s largest recoverable reserves of copper and the biggest single gold reserve. Harmony shares rose to the highest in more than two years in April as optimism for the project triggered takeover speculation.
“Every major copper company in the world would be interested, along with every major gold company,” said Jo Battershill, an analyst at UBS AG in Sydney.
Newcrest fell 0.3 percent to A$38.65 at 10:27 a.m. in Sydney trading, down 4.4 percent since the start of the year. Harmony fell 1 percent yesterday in Johannesburg.
Gold reached a record last month and has risen for 10 straight years, driving acquisitions last year to the highest since at least 1998. Copper rose to a record in February. A lack of new projects is forcing gold and copper producers to expand through acquisitions, BlackRock Inc., owner of the world’s largest mining fund and third-largest shareholder in Harmony, said last year.
Newcrest doesn’t respond to speculation, spokeswoman Kerrina Watson said by phone. Johannesburg-based Harmony doesn’t comment on speculation, spokeswoman Marian van der Walt said in an e-mail.
Wafi-Golpu is valued at about A$9.3 billion ($9.9 billion), Deutsche Bank AG said in a report. Only Grasberg, in neighboring Indonesia, and Ivanhoe Mines Ltd.’s Oyu Tolgoi deposit in Mongolia, contain higher gold-equivalent ounces per ton of ore, Harmony said in a March presentation.
“Golpu is the first major copper discovery in 20 years, the richest in 20 years” said James Bruce, who helps manage $3.5 billion at Perpetual Ltd., including Newcrest shares.
First production is scheduled to start in 2016 and the “massive” ore body, located in mountains about 80 kilometers (50 miles) from the port of Lae, may cost about $5 billion to develop, Goldman Sachs & Partners Australia Pty. has estimated.
Harmony is trading at 36 times estimated earnings, the most of the 14 members in the BI GL Senior Gold index of global producers. It’s the best performing gold company in the Bloomberg World Mining Index in the past three months.
Harmony’s Chief Executive Officer Graham Briggs, struggling with aging mines and rising costs in South Africa, said in April that the company hasn’t been approached about any takeover.
The company intends to retain its stake in Wafi-Golpu and may fund its share of the development costs through bonds and forward copper sales from the project as well as with cash and bank debt, spokeswoman van der Walt said in the e-mail.
Newcrest would be happy to talk to Harmony if the company couldn’t, or didn’t want to finance its full half of the project, the Australian Financial Review said last month, citing Newcrest Chief Executive Officer Ian Smith. Newcrest spokeswoman Watson didn’t respond to requests for comment on the report.
There have been $12.12 billion of gold takeovers announced so far this quarter, the strongest second quarter in at least ten years, according to data compiled by Bloomberg.
Three years ago Harmony shortlisted a “handful” of unnamed potential partners to develop the project, eventually choosing Newcrest who agreed to pay Harmony $525 million for half of its Papua New Guinea operations, including Wafi-Golpu. Rio Tinto Group sold Wafi-Golpu for $35 million in 2002, while BHP Billiton Ltd. sold Oyu Tolgoi for $48 million in 2003.
Barrick Gold Corp., Newmont Mining Corp. and Gold Fields Ltd. could be interested in the assets, said Anna Kassianos, an analyst at Austock Securities Ltd. Barrick, which has agreed to buy Equinox Minerals Ltd. for C$7.3 billion ($7.5 billion), is well-positioned to make a bid as are copper producers Freeport and Antofagasta Plc, she said.
“A Harmony takeover still makes sense strategically and now, even more so, post the Equinox acquisition” for Barrick, Sydney-based Kassianos said by phone. “Harmony’s aging, high- cash cost South African assets” and some or all of the Equinox assets could be funneled into African Barrick Gold Ltd., she said.
Sven Lunsche, corporate affairs manager for Johannesburg- based Gold Fields, declined to comment in an e-mail. Patrick Bindon, Barrick’s public affairs manager in Perth said the company doesn’t comment on market speculation. Brian Watt, principal adviser communications and public relations for Newmont, declined to comment.
Harmony’s attraction to a suitor may be dimmed by possible worker compensation claims in South Africa. While the ultimate number of claims and their size is impossible to determine, mining companies may face a liability of as much as $100 billion, Leon Esterhuizen, an analyst at RBC Capital Markets in London, said in a May 6 note to clients. A settlement at a significantly lower level is more likely, he said in a May 16 interview.
“Harmony has a number of challenges based on this recent South African labor court case to do with miner health,” said Saxon Nicholls, who helps manage the equivalent of $970 million at Herschel Asset Management Ltd. in Melbourne, including shares in Newcrest. “We can’t see any company wanting to get involved with a potentially uncapped liability.”
Harmony isn’t fully valued because of its operations outside Papua New Guinea, while Golpu was turning out to be a significant copper resource, said Warren Edney, senior resource analyst at Royal Bank of Scotland Group Plc. “It’s potentially attractive to anyone.”
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